Demand for rental properties increases in London in third quarter of 2017

18th December 2017

Despite the political ambiguity surrounding Brexit, demand for rental properties in London increased in the third quarter of this year, according to the latest lettings report.

The number of tenants registered per new property instructed rose from 7.7 to 9.2 compared to the same quarter last year, the report from Foxtons also shows with some locations seeing rents asked falling.

New tenancies in the third quarter saw rents or studio flats fall by 5.6% to £50.06 per square foot quarter on quarter, while rents for one bed flats reached £37.97 per square foot, a rise of 3.2%, two bed flats increased by 5.6% to £31.77, three bed flats were up 2.8% to £31.43 and rents for houses increased by 4.5% to £25.50.

But there is more difference depending on location year on year. Rents for all property types have fallen in Zone One, down 1% for studios, down 3.2% for one bed flats, down 2.6% for two bed flats and down 3.1% for flats with three bedrooms or more.

In Zone Two, however, rents have increased for all but bigger apartments. For studios rents increased by 8% year on year, they were up 2% for one bed flats, up 2% for two bed flats but down 1.1% for three bedrooms plus.

Rents also fell in Zones Three to Six, down by 2.6% for studios, down 2.9% for one bed flats, down 3.5% for two bed flats and down 6.6% for flats with three bedrooms or more.

The lettings report also shows that gross yields for flats across London remain largely unchanged on levels seen a year ago. However, the slowdown in the rate of capital growth over the year to date has affected returns on residential properties which are now almost half the level they were two years ago. Strongest returns are currently to be found for flats in Zone One and houses in Zones Three to Six.

Stock levels have also been on the decline which means that the supply and demand dynamic has also been stabilised. The third quarter followed the usual seasonal trend with an increase in stock of rental properties listed to rent compared to the previous quarter. However, a comparison with the same period last year shows the downward trend in stock levels. There are now fewer rental properties available than a year ago.

According to Sarah Tonkinson, director of institutional PRS and Build to Rent at Foxtons, the third quarter is known as ‘the lettings quarter’ of the year as a number of existing tenancies come to an end and there is a natural increase in activity from students and corporate tenants.

‘The oversupply of properties, created in part by a surge in the number of buy to let property purchases in advance of stamp duty changes in April 2016, has now been absorbed by the market,’ she said.

‘After benefiting from a softening in prices as a result of that oversupply, tenants opted for longer term contracts, and this has helped stabilise the supply demand balance further,’ she added.

The report also shows that the tenant demographic in London remains varied. There has been a 6% decrease in Western European tenants and a 3% decrease in tenants from the rest of Europe but this was balanced out by a significant 8% increase in tenants from Asia and the Middle East, compared to the same quarter last year.

‘London continues to retain its status as one of the most attractive cities in the world, and despite the ongoing uncertainty surrounding political affairs, property remains a strong investment choice,’ added Tonkinson.